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Y2 ECON > theme 3 key words > Flashcards

theme 3 key words Flashcards

1
Q

allocative efficiency

A

when resources are allocated to the best interests of society, when there is maximum social welfare and maximum utility; P=MC

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2
Q

asymmetric information

A

where one party has more information than the other, leading to market failure and causing problems for regulators

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3
Q

average cost/average total cost (AC/ATC)

A

The cost of production per unit
total costs/
quantity produced

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3
Q

average revenue (AR)

A

The price each unit is sold for
TR
quantity sold

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4
Q

bilateral monopoly

A

where there is only one buyer and one seller in the market

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5
Q

cartels

A

a formal collusive agreement where firms enter into an agreement to mutually set prices

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6
Q

collusion

A

occurs when firms agree to work together, for example by setting a price or fixing the quantity they produce

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7
Q

competition policy

A

government action to increase competition in markets

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8
Q

competitive tendering

A

when the government contracts out the provision of a good or service and invites firms to bid for the contract

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9
Q

conglomerate integration

A

the merger of firms with no common connection

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10
Q

constant returns to scale

A

output increases by the same proportion that the inputs increase by

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11
Q

decreasing returns to scale

A

an increase in inputs by a certain proportion will lead to output increasing by a smaller proportion

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12
Q

demergers

A

a single business is broken into two or more businesses to operate on their own, to be sold or to be dissolved

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13
Q

deregulation

A

the removal of legal barriers to allow private enterprises to compete in a previously protected market

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14
Q

derived demand

A

the demand for one good is linked to the demand for a related good

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15
Q

diminishing marginal productivity

A

if a variable factor is increased when another factor is fixed, there will come a point when each extra unit of the variable factor will produce less extra output than the previous unit; after a certain point, marginal output falls

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16
Q

diseconomies of scale

A

the disadvantages that arise in large businesses that reduce efficiency and cause average costs to rise

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17
Q

divorce of ownership from control

A

firms are owned by shareholders, who have little say in the day to day running of the business, and controlled by managers; this leads to the principal-agent problem

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18
Q

dynamic efficiency

A

efficiency in the long run; concerned with new technology and increases in productivity which causes efficiency to increase over a period of time

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19
Q

economies of scale

A

the advantages of large scale production that enable a large business to produce at a lower average cost than a smaller business

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20
Q

external economies of scale

A

an advantage which arises from the growth of the industry within which the firm operates, independent of the firm itself

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21
Q

fixed cost

A

costs which do not vary with output

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22
Q

for-profit business

A

a business whose main aim is to make money

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23
Q

game theory

A

used to predict the outcome of a decision made by one firm, when it has incomplete information about the other firm

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24
Q

geographical mobility of labour

A

the ease and speed at which labour can move from one area to another

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25
Q

horizontal integration

A

the merger of firms in the same industry at the same stage of production

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26
Q

increasing returns to scale

A

an increase in inputs by a certain proportion will lead to an increase in output by a larger proportion

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27
Q

interdependent

A

the actions of one firm directly affects another firm

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28
Q

1.

internal economies of
scale

A

an advantage that a firm is able to enjoy because of growth in the firm, independent of anything happening to other firms or the industry in general

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29
Q

limit pricing

A

when firms set prices low in order to prevent new entrants; used in contestable markets

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30
Q

loss

A

when revenue does not cover costs

31
Q

marginal cost

A

the additional cost of producing one extra unit of good

32
Q

marginal revenue

A

the additional revenue gained by selling one extra unit of good

33
Q

mmaximum wage

A

a ceiling wage which people cannot earn above

34
Q

minimum efficient scale

A

the lowest level of output necessary to fully exploit economies of scale

35
Q

minimum wage

A

a floor wage which people cannot earn below

36
Q

monopolistic competition

A

where there are a large number of buyers and sellers who are relatively small and act independently, selling non-homogeneous goods

37
Q

monopoly

A

a single seller in the market

38
Q

monopsony

A

a single buyer in the market

39
Q

m-firm concentration ratio

A

the percentage of market share held by the ‘n’ biggest firms

40
Q

nationalisation

A

when a private sector company or industry is brought under state control, to be owned and managed by the government

41
Q

natural monopoly

A

where economies of scale are so large that not even a single producer is able to fully exploit them; it is more efficient for there to be a monopoly than many sellers

42
Q

non-collusive oligopoly

A

when firms in an oligopoly compete against each other, rather than making agreements to reduce competition

43
Q

non-price competition

A

when firms compete on factors other than price, for example customer service or quality; they aim to increase the loyalty to the brand which makes demand more inelastic

44
Q

normal profit

A

the minimum reward required to keep entrepreneurs supplying their enterprise, the return sufficient to keep the factors of production committed to the business; TC=TR

45
Q

not-for-profit business

A

where firms are run in order to maximise social welfare and help individuals and groups; any profit they do make is used to support their aims

46
Q

occupational mobility of labour

A

the ease and speed at which labour can move from one type of job to another

47
Q

oligopoly

A

where a few firms dominate the market and have the majority of market share, they act interdependently

48
Q

organic growth

A

where firms grow by increasing their output

49
Q

overt collusion

A

collusion where firms come to a formal agreement, for example a cartel

50
Q

perfect competition

A

a market with many buyers and sellers selling homogenous goods with perfect information and freedom of entry and exit

51
Q

perfectly contestable market

A

a market with no barriers to entry, where a new firm can easily enter and compete against incumbent firms completely equally

52
Q

predatory pricing

A

when a large, established firm is threatened by new entrants so sets such a low price that other firms make losses and are driven out the market

53
Q

price leadership

A

Where one firm sets prices and other firms tend to follow this firm as they are fearful of engaging in a price war

54
Q

price wars

A

where firms continuously drive prices down to the point where they are frequently making losses and firms are forced to leave

55
Q

principal-agent
problem

A

where the agent makes decisions on behalf of the principal; the agent should maximise the benefits of the principal but have the temptation of maximising their own benefits

56
Q

private sector

A

the part of the economy that is owned and run by individuals or groups of individuals

57
Q

privatisation

A

the sale of government equity in nationalised industries or other firms to private investors

58
Q

productive efficiency

A

when resources are used to give the maximum possible output at the lowest possible cost; MC=AC

59
Q

profit maximisation

A

when firms produce at a point which derives the greatest profit; MC=MR

60
Q

profit satisficing

A

when a firm earn just enough profit to keep its shareholders happy

61
Q

public sector

A

the part of the economy that is owned or controlled by local or central government

62
Q

regulatory capture

A

when regulators become more empathetic and are able to ‘see things from the firm’s perspective’, which removes impartiality and weakens their ability to regulate

63
Q

revenue maximisation

A

when firms produce at a point which derives the greatest revenue; MR=0

64
Q

sales maximisation

A

when firms produce at a point where they sell as many of their goods and services as possible without making a loss; AR=AC

65
Q

static efficiency

A

the level of efficiency at one point in time

66
Q

sunk cost

A

costs that cannot be recovered once they have been spent

67
Q

supernormal profit

A

the profit above normal profit, TR>TC

68
Q

tacit collusion

A

collusion where there is no formal agreement, such as price leadership

69
Q

third degree price discrimination

A

when monopolists charge different prices to different groups for the same good or service

70
Q

total cost

A

the cost to produce a given level of output
total variable costs+total fixed costs

71
Q

total revenue

A

revenue generated from the sale of a given level of output
price x quantity sold

72
Q

variable cost

A

costs which change with output

73
Q

vertical integration

A

when a firm merges or takes over another firm in the same industry, but at a different stage of production

74
Q

X-inefficiency

A

when firms produce at a cost above the AC curve

Y2 ECON (13 decks)

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